Argentina's natural gas industry
was privatized at the end of 1992. Prior to divestiture, the
state-owned monopoly Gas del Estado was divided into two
transport and eight distribution companies, all of which
were sold through international bidding. An independent
government body, Ente Naal Regulador de Gas (Enargas), was
established to regulate the transport and distribution
segments of the industry. As part of its mandate, Enargas is
in charge of price reviews. These reviews, which occur every
five years, determine the allowed tariffs for each transport
and distribution company. The first such review took place
in 1996-97, and the new tariffs went into effect in January
1998. This Note examines the methodology and outcome of this
experience. The Enargas price review is of interest for
several reasons. First, it is the first of its kind in
Argentina, and one of the first in a developing country. The
outcome of the process provides a test of the regulatory
framework adopted by the Argentine government, and may
influence regulatory reform in other parts of the world.
Second, as the first such event, the 1996-97 review set a
precedent for methodologies and approaches to be used in
future utility price reviews in Argentina. Finally, the
approach used to calculate the cost of capital-as well as
the other parameters used to set prices-provide an
interesting illustration of how theoretical and practical
methods from regulatory practice in industrial countries can
be adapted to developing countries, where data availability
and other restrictions prevent a direct transfer of techniques.